Ita/179/2011 Of The Commissioner Of Income Tax -I,Kochi v. M/S.abad Constructions Pvt.ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE TUESDAY, THE 4TH DAY OF MARCH 2014/13TH PHALGUNA, 1935 ITA.No. 179 of 2011 ( ) ------------------------ ITA.NO. 507/COCH/2009 OF INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCHDATED 17-6-2011 - ASST. YEAR 2005-2006 ------------------- APPELLANT / RESPONDENT : -------------------------------------------- THE COMMISSIONER OF INCOME TAX -I, COCHIN. BY ADVS.SRI. P.K.R. MENON, SR. COUNSEL SRI.JOSE JOSEPH, SC RESPONDENT/APPELLANT : ------------------------------------------ M/S.ABAD CONSTRUCTIONS PVT. LTD., ABAD PLAZA COMPLEX, M.G.ROAD, KOCHI-682 035. BY SENIOR ADVOCATE SRI.JOSEPH KODIANTHARA BY ADVS. SRI.MATHEWS K.UTHUPPACHAN SRI.BINU MATHEW SRI.TERRY V.JAMES SRI.B.J.JOHN PRAKASH SRI.TOM THOMAS (KAKKUZHIYIL) SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 04-03-2014, ALONG WITH ITA.NO. 180/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Mn ITA.No. 179 of 2011 ( ) APPENDIX PETITIONERS' ANNEXURES : ------------------------------------------- ANNEXURE ACOPY OF ASST. ORDER U/S.143(3) R.W.S. 147, DATED 30/12/2008 FOR THE ASSESSMENTS YEAR 2005-06. ANNEXURE BCOPY OF THE REVISIONAL ORDER DATED 17/12/2010.ANNEXURE CCOPY OF THE ORDER DATED 17/6/2011 OF THE INCOME TAXAPPELLATE TRIBUNAL, COCHIN BENCH, ITA.NO.507/COCH/2009. RESPONDENTS' EXHIBITS : NIL------------------------------------------------------- //TRUE COPY// P.S. TO JUDGE Mn MANJULA CHELLUR,C.J. & A.M.SHAFFIQUE, J. = = = = = = = = = = = = = = = = I.T.A. Nos.179 & 180 of 2011 = = = = = = = = = = = = = = = = = = = = = Dated this the 4th day of March, 2014 JUDGMENT Manjula Chellur,CJ The following substantial questions of law arise forconsideration:- “a. Whether the suo motu revisional order of Commissioneris right in law and with jurisdiction and the Tribunal is right in law insetting aside the order? b. Whether, on the facts and in the circumstances of thecase and in the light of the finding of the Commissioner that the“Assessing Officer has failed to make enquiry as regards theallowability of the claim of the assessee under section 80IB.......”read in the light of the principle laid down in the decisions reportedin 214 ITR 583; 101 ITR 1, is not the order of Commissioner legaland with jurisdiction? c. Whether, on the facts and in the circumstances of the caseand the order of the Commissioner being one confined to jurisdictionwithout touching upon the case on merits,-- 1. the Tribunal is right in law in considering the case on meritsand setting aside the order of Commissioner;and setting aside the order of Commissioner; 2. is not the order of the Tribunal on merits uncalled for andperverse?”perverse?” I.T.A. Nos.179 & 180 of 2011 2. These two I.T.Appeals pertain to assessment years 2005-06 and 2006-07. The brief facts that led to filing of thepresent appeals are as under:- Respondent-assessee is a company engaged in the c. Whether, on the facts and in the circumstances of the caseand the order of the Commissioner being one confined to jurisdictionwithout touching upon the case on merits,-- 1. the Tribunal is right in law in considering the case on meritsand setting aside the order of Commissioner;and setting aside the order of Commissioner; 2. is not the order of the Tribunal on merits uncalled for andperverse?”perverse?” I.T.A. Nos.179 & 180 of 2011 2. These two I.T.Appeals pertain to assessment years 2005-06 and 2006-07. The brief facts that led to filing of thepresent appeals are as under:- Respondent-assessee is a company engaged in the business of constructing apartments and villas. Declaring thetaxable income of `6,66,450/-, the company filed its return ofincome on 31.10.2005 so far as 2005-06. It declared a taxableincome of `52,11,011 in its return of income filed on24.11.2006 so far as 2006-07. In both the years assessee hadclaimed certain amount as deductions allowable underSection 80-IB(10) of the Income Tax Act (hereinafter referredto as the Act) being profits and gains from infrastructuredevelopment i.e. developing and building of housing projects.Assessing officer made a preliminary enquiry and found thattwo projects undertaken by the assessee during the above twoassessment years did not qualify for deduction under Section80IB of the Act. Assessing Officer had also found that inrespect of project Marine Plaza there was some violationagainst approved construction plan which would make the I.T.A. Nos.179 & 180 of 2011 project ineligible for deduction under section 80-IB(10) of theAct. So far as the first assessment year, a notice underSection 148 of the Act came to be issued on 11.03.2008, afterrecording reasons for re-opening the assessment. By letterdated 25.03.2008 the assessee requested to treat the returnfiled on 31.10.2005 as one filed in response to the noticeunder Section 148 of the Act. However, on 02.04.2008assessee filed a return of income for the assessment year2005-06 along with Audit Reports, Financial Statements andother Report in the required forms. However, so far asincome is concerned, there was no change in the income inthis revised return. 3. Then coming to the assessment year 2006-07, it was aregular assessment and as on the date of taking upcomputation of tax for the assessment year 2006-07,assessment for the previous year was not yet over, therefore,the officer opined that both should be taken up and disposedof on the same day. So far as stand of the assessee, for boththe assessment years in a land consisting of 1.76 acres, I.T.A. Nos.179 & 180 of 2011 apartments were put up, maximum built up area in respect of the “A” type flats is 1497 sq. feet which is below 3 feetmaximum area of 1500 sq.feet to extend benefit of deductionunder Section 80-IB. They also contended that the spaceoccupied by shops and commercial rooms works out less than5% of the aggregate built up area, hence, according to theassessee all conditions required for claiming deduction underSection 80-1B(10) was complied with. 4. The assessing officer having noticed that the built uparea of “A” type apartment in the project being 1497 sq.ft just3 sq.ft less than the maximum area for which deduction isallowable felt there has to be some enquiry into the matter.After perusing the list of names of purchasers to whom theflats were sold, he learnt that some of the adjacent flats weresold to members of the same family. Therefore, he felt theneed to ascertain the factual situation whether two of theapartments have been combined to form a single unit. It isalso relevant to mention that the assessment though wasinitiated and proceeded with by another officer, by the time it 4. The assessing officer having noticed that the built uparea of “A” type apartment in the project being 1497 sq.ft just3 sq.ft less than the maximum area for which deduction isallowable felt there has to be some enquiry into the matter.After perusing the list of names of purchasers to whom theflats were sold, he learnt that some of the adjacent flats weresold to members of the same family. Therefore, he felt theneed to ascertain the factual situation whether two of theapartments have been combined to form a single unit. It isalso relevant to mention that the assessment though wasinitiated and proceeded with by another officer, by the time it came to be concluded the officer who passed Annexure Aorder was in charge of the file. After perusal of a note in thefile by predecessor in office, assessing officer in question feltsome violation of the approved plan seems to exist and alsopossibility of combining adjacent apartments to form a singleunit, opined, verification by inspection of the building wasnecessary. 5. As a matter of fact, Smt.Daisy Abraham and one Mr.K.T.Anil Kumar, two inspectors, were sent to have the spotstudy and give a report. Though such officers went to thebuilding and saw the apartments, their information as perrecords reveal that some apartments were opened and mostof the apartments were locked as those apartments werealready handed over to the purchasers. The assessee wasalso not in possession of the keys of those apartments. Thiswould indicate that they requested the assessee to furnish thekeys of those apartments which were locked. However, theywere not able to make a reasonable assessment of the factualsituation. This is what contained in the report dated I.T.A. Nos.179 & 180 of 2011 23.12.2008. In the report those officers also opined, thecorrectness of the area of the apartments could be verifiedonly with expert's assistance in the field. The assessee alsoresponded to the queries seeking some more time to informthe purchasers to make available those apartments whichwere closed for inspection. 6. In the above circumstances, assessing officeropined, the information was not sufficient to decide or werenot satisfactory to support the claim of deduction underSection 80IB(10) claimed by the assessee. However,surprisingly the assessing officer opining that assessment forboth years was getting time barred proceeded to complete theassessment and allowed the deductions claimed by the assessee.This became the subject matter of proceedings on the file ofCommissioner of Income Tax who initiated suo motu proceedingsunder Section 263 of the Act. 7. After issuing show cause notice dated 23.06.2009 and considering the response of the assessee through itsrepresentative, Commissioner, after referring to the factual situation with reference to sub-section 10 of Section 80-IB,proceeded to form its opinion at paragraphs 3 and 4 which readas under:- 7. After issuing show cause notice dated 23.06.2009 and considering the response of the assessee through itsrepresentative, Commissioner, after referring to the factual situation with reference to sub-section 10 of Section 80-IB,proceeded to form its opinion at paragraphs 3 and 4 which readas under:- “3. I have carefully considered the submissions of theassessee and perused the records of the case. During thecourse of assessment proceedings, field enquires were madeand it was noticed that in respect of the project 'Marine Plaza'there was some violation made against the approved plan in theconstruction of the apartment and hence this project was noteligible for deduction under section 80-IB. Spot inspection ofthe apartments in the project was made to verify the claim ofthe assessee. However, since most of the apartments whichwere already allotted to the customers were locked up, detailedinspection could not be carried out. Since the assessee wasalso not in possession of the keys of those apartments, itrequested for more time to make available the apartments forinspection since they had to contact the purchasers. Further,some technical assistance was also required to verify thecorrectness of the area of the flats. It appears that since theassessments involved were barring by limitation, the orderswere passed on the basis of the materials available withoutmaking proper and detailed examination of the claim of theassessee under section 80-IB. In its submissions dated04.08.2009, the assesee's own admission that 'if for any reasonit is found out that some of the units have plinth area in excessof 1500 sq.ft, the assessee cannot be denied deduction under section 80-IB for the entire project' itself shows that there hasbeen some violation of the approved plan of the project. 4. The assessee's contention that the Commissioner has no material to come to the conclusion that the assessmentis erroneous and prejudicial to the interests of revenue, cannotbe accepted. The provisions of section 263 empowers theCommissioner to call for and examine records of anyproceedings under the Act if he considers that any order passedby the Assessing Officer is erroneous in so far as it is prejudicialto the interests of the revenue. In this case, having called forand examined the assessment proceedings for the aboveassessment years, I am of the considered view that theAssessing Officer has failed to make enquiry as regards to theallowability of the claim of the assessee under Section 80-IBand hence the assessment order of the AO in allowing thesame, without making proper and detailed enquiry, is erroneousand prejudicial to the interests of revenue and, therefore,amenable to revisional jurisdiction of the Commissioner. xxxx xxxxx xxxx” 8. Ultimately, at paragraph 6, he opined that assessmentorders passed by the assessing officer dated 30.12.2008 forboth the assessment years are erroneous in so far as they areprejudicial to the interest of the revenue and those orders wereset aside for the limited purpose of verification of thededuction claimed under Section 80-IB(10) of the Act. The I.T.A. Nos.179 & 180 of 2011 Assessing Officer was directed to recompute the deductionallowable under Section 80-IB afresh. 9. This order came to be challenged before the AppellateTribunal by the assessee. The Tribunal, after considering thefacts and circumstances in which notice under Section 263 ofthe Act came to be given, ultimately opined that there was nojustification for the Commissioner to invoke its jurisdictionunder Section 263 of the Act and proceeded to quash theimpugned order dated 27.8.2009 passed under Section 263 ofthe Act. This is the subject matter in the appeals before us. I.T.A. Nos.179 & 180 of 2011 Assessing Officer was directed to recompute the deductionallowable under Section 80-IB afresh. 9. This order came to be challenged before the AppellateTribunal by the assessee. The Tribunal, after considering thefacts and circumstances in which notice under Section 263 ofthe Act came to be given, ultimately opined that there was nojustification for the Commissioner to invoke its jurisdictionunder Section 263 of the Act and proceeded to quash theimpugned order dated 27.8.2009 passed under Section 263 ofthe Act. This is the subject matter in the appeals before us. 10. Learned Standing Counsel for the Departmentcontended that previous assessing officer, i.e. predecessor tothe officer who completed the assessment, had noted thedefects or doubts so far as the measurement or area ofapartment, in the light of factual situation, that is, A typeapartment 1497 sq.ft. i.e. just 3sq.ft less than the maximummeasurement to go out of benefit of deduction and possibilityof removal of common wall between two apartments, makingas single unit as the purchase was by same family members, the officer concerned referring to such doubts or suspicion feltthey could be dispelled only by spot inspection. There wasjustification on the part of the assessing officer to deputeofficers for inspection. However, inspection could not becompleted for the reasons stated in the orders. Therefore, theassessing officer instead of proceeding with computation ofincome, ought to have rejected the claim of deduction for wantof material particulars and this is nothing but an erroneousprocedure adopted by the assessing officer. It is nothing shortof non-application of mind by the assessing officer whichamounts to erroneous decision. He further contends that inthe absence of details there could not have been suchcomputation of tax payable, therefore ultimate result will beprejudicial to the interest of the revenue. Therefore there wasjustification so far as proceedings initiated under Section 263of the Act. He places reliance so far as Section 263 of the ActinAppollo Tyres Ltd v. Deputy Commissioner of Income-Tax (2014) 360 ITR 36(Ker). I.T.A. Nos.179 & 180 of 2011 11. So far as the orders of the Commissioner, he alsocontends that it was open remand with reference to Section 80-IB (10) of the Act. In other words, every question that has tobe considered under Section 80-IB(10) of the Act was keptopen for consideration. Therefore, Tribunal ought not haveproceeded on other materials which were available in theassessment proceedings before the Assessing Officer.According to learned Standing Counsel, the occupancycertificate and approved plan cannot be considered withoutany verification for the purpose of allowing deductions underSection 80(i)B and the subjective satisfaction of the assessingofficer with reference to deductions claimed by the assesseerequires verification and satisfaction by the officer concerned.Therefore, having opined that required material was notavailable, the assessing officer was not justified in passing suchorders. Therefore, Tribunal ought to have confirmed theorders of Commissioner of Income Tax under Section 263 ofthe Act and orders of the Tribunal deserves to be set aside. 12. As against this, learned Senior Counsel, Shri.AbrahamMarkose submits that it was very much within the competencyof the assessing officer to disallow the deductions claimedunder Section 80-IB having found that there was no sufficientmaterial satisfying or clearing the doubts noted by previousassessing officer as inspecting officers were not able to securecomplete picture of the factual situation. Having opinedinability of the department to get sufficient material and in thelight of the fact that assessee was unable to have key of theapartments that were locked, as much earlier to that date,possession of the buildings were handed over to the respectiveallottees/purchasers, nothing else was available within thepower of the assessee to furnish the material, therefore, therewas nothing else assessee could do. Therefore the assessingofficer based on the available material, that is, approved planetc. has proceeded with the assessment. Having proceededwith the assessment, allowing the claim of deductions, it has tobe presumed that the material available as on the date ofcompleting the assessment proceedings satisfied the assessing I.T.A. Nos.179 & 180 of 2011 officer that the claim was justified. Hence, initiation ofproceedings under Section 263 of the Act by Commissioner ofIncome Tax, according to learned senior counsel waserroneous. When it was possible for the assessing officer toreject the claim of deduction but on the other hand havingaccepted material placed before him, i.e.approved plan andoccupancy certificate along with building tax assessmentgiving the details of measurement, there was no justification toconclude that assessment was erroneous and prejudicial to theinterest of the revenue. According to him, factual situation inwhich assessment came to be completed did not warrantinitiation of any proceedings under Section 263 of the Act asassessing officer who had the authority to reject the claim ofdeduction was of the opinion, could allow the claim of thededuction, therefore, there was no non-application of mind onthe part of the officer. 13. So far as orders of the Tribunal, according to learnedsenior counsel, the Tribunal, having regard to the situation inwhich the earlier officer had made a note of details to be I.T.A. Nos.179 & 180 of 2011 gathered, having attempted and failed in complying with thematerial particulars, there was no reason why the assessingofficer should not rely upon the available material. Thispersuaded the Tribunal to opine that no circumstancewarranted to initiate proceedings under Section 263 of the Act.He also relies upon two decisions in Commissioner of'Income-Tax vs. L.F.DSilva (1991) 192 ITR 547 andCommissioner of Income Tax v. Hindusthan Coconut OilMill (2002) 255 ITR 428). 14. We have gone though the judgments relied upon bythe Standing Counsel as well as Senior counsel. In the aboveappeals, the entire controversy revolves around whethercircumstances warrant initiation of proceedings under section263 of the Act by the Commissioner or not. On perusal of theassessment order, though assessing officer had made amention that so far as assessment year 2005-06 the limitationwas running by 30.12.2008, we note, even in respect of 2006-07, the limitation for completion of assessment proceedingswould be over by 31.12.2008. There was an attempt on the I.T.A. Nos.179 & 180 of 2011 14. We have gone though the judgments relied upon bythe Standing Counsel as well as Senior counsel. In the aboveappeals, the entire controversy revolves around whethercircumstances warrant initiation of proceedings under section263 of the Act by the Commissioner or not. On perusal of theassessment order, though assessing officer had made amention that so far as assessment year 2005-06 the limitationwas running by 30.12.2008, we note, even in respect of 2006-07, the limitation for completion of assessment proceedingswould be over by 31.12.2008. There was an attempt on the I.T.A. Nos.179 & 180 of 2011 part of learned Senior Counsel to refer to this observation ofthe assessing officer to contend that as the limitation wasrunning out, the assessing officer hurried up and proceededwith the assessment. If this argument were to be believed, itwas within the competency of the assessing officer to reject theclaim of deduction. On the other hand, the assessing officerhad allowed the deduction giving a concession after expressingdoubt that the material attempted to be collected was notcollected, therefore, he proceeded to pass the orders on theavailable material. 15. The subjective satisfaction of the officer whileproceeding with computation of tax payable, it is notsuccessive officer's subjective satisfaction with which we areconcerned, we are concerned with both the assessing officersas found in the files. If the assessing officer did not make anattempt to collect material in spite of a note by earlier officer,probably it would have been a different situation altogether.Having opined that there need to be further inspection toascertain the factual situation in spite of several documents I.T.A. Nos.179 & 180 of 2011 like approved plan, occupancy certificate building taxassessment proceedings in the file, proceeded ahead withcollection of material fact. This would clearly indicateassessing authority who was passing orders factually was notsatisfied with the material available therefore attempted tocollect material; but failed. 16. Having discussed the entire details with referenceto incomplete material, in one sentence he proceeds to passthe orders on the available material. This very availablematerial was incomplete according to him. This is thesubjective satisfaction of the assessing authority. Though notsatisfied with the material available, he still proceeded to opinethat the claim of deduction has to be allowed. This is nothingshort of non-application of mind. Most of the discussion andreasoning was in respect of a particular opinion of the officerbut in the last sentence in the assessment order gives go by tothat opinion. This is nothing short of erroneous view taken bythe authority. In other words, there was no subjectivesatisfaction but still he proceeded to pass the order. Having proceeded to pass such erroneous order with incompletematerial particulars, giving deduction as claimed by theassessee is prejudicial to the interest of the revenue. 17. Learned Senior counsel also contended that disposal of two appeals is purely an academic issue in view ofassessment being completed by fresh order, in the light oforders under section 263 of the Act. We are not concernedwith the merits or demerits of assessment orders now passedconsequent to the orders of Commissioner under Section 263of the Act. It will take its own course of action in accordancewith law. Whether there was extraneous considerationpertaining to issues which were required to be considered ornot cannot be looked into and discussed in these appeals. Weare only required to see whether Commissioner of Income Taxwas justified in initiating and proceeding with the matter bythe impugned order. 17. Learned Senior counsel also contended that disposal of two appeals is purely an academic issue in view ofassessment being completed by fresh order, in the light oforders under section 263 of the Act. We are not concernedwith the merits or demerits of assessment orders now passedconsequent to the orders of Commissioner under Section 263of the Act. It will take its own course of action in accordancewith law. Whether there was extraneous considerationpertaining to issues which were required to be considered ornot cannot be looked into and discussed in these appeals. Weare only required to see whether Commissioner of Income Taxwas justified in initiating and proceeding with the matter bythe impugned order. 18. In order to accept the approved plan, occupancycertificate and building tax assessment order, none of theprovisions with reference to Section 80-1B provide that production of such documents would be sufficient. If thatwere to be the intention of the legislature, they would havesaid so in the relevant provisions. On the other hand, readingof Section 80-1B and the relevant sub-section clearly indicatesit is the factual situation which would decide the allowance ofclaim or not. In other words, the subjective satisfaction whichwe referred to above is with regard to material particulars.How one gets these material particulars, could be from thedocuments produced by the assessee and if a doubt orsuspicion arises in the mind of the assessing officer he has tomake an enquiry and secure material which dispels his doubtor suspicion. The doubt expressed is a genuine one because oftwo reasons, that is, 'A' type flat is just 3 sq.ft.less thanmaximum measurement of the apartment and same familymembers had purchased adjacent apartments. 19. Unless this is factually verified by spot inspection, itremains a doubt. When deductions are allowed under Section80-1B several checks and balances are indicated. In order togive concession or benefit of deduction, the officer has to take I.T.A. Nos.179 & 180 of 2011 into account whether there is any attempt to evade payment oftax. This is the primary duty of the department. In order todischarge this duty, the subjective satisfaction of the officer isvery relevant. Therefore, we are of the opinion, the Tribunalwas not justified in setting aside the orders of theCommissioner and we are of the opinion, in the light of theabove discussion and reasoning, Commissioner was justified ininitiating proceedings under Section 263 of the Act. Accordingly, these two appeals are allowed. MANJULA CHELLUR,CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE. sj